The Single Resolution Board (SRB) is the resolution authority within the European Banking Union.1 Its mission is to resolve failing banks in an orderly manner, thus minimizing negative impacts on the real economy and on public finances. The SRB was established in 2015 and functions within the framework of the Single Resolution Mechanism (SRM), together with the national resolution authorities within the Eurozone (NRAs), the Council of the European Union, the European Commission, and the European Central Bank (ECB). The rationale for the establishment of the SRM is centralizing decision-making on the resolution of failing banks at the European Banking Union level and thereby aligning it with the centralized model of banking supervision within the Eurozone that commenced in 2014.
The first section of this chapter provides background information on the establishment of the European resolution framework. The second section discusses the cooperation between the SRB and its stakeholders within the SRM, with a particular focus on the division of tasks between the SRB and the NRAs. The third section touches upon the resolution tools that are available within the SRM and the safeguards accompanying the application of those tools. Section four describes the cooperation between the SRB and other authorities at the international level.
Establishment of the European Resolution Framework
The market for banks in Europe was originally based on the principle of “minimum harmonization and mutual recognition” of national banking licenses and supervision. While this principle served the goal of opening the national banking markets to cross-border competition in the last part of the twentieth century, when the global financial crisis first hit in 2008 this approach was found to be wanting. The lack of common rules for European banks resulted in regulatory arbitrage, obstacles to cross-border business activities, and inconsistencies in risk management. National requirements were not geared toward the consolidated management of banks. It emerged that fully harmonized European rules were needed to address the drawbacks of divergences in national rules.
The Need for Common European Rules: The Single Rulebook
In the wake of the financial crisis, the European Council in 2009 called for the establishment of a “Single Rulebook”—a single set of European rules that would apply to all banks and investment firms in the European Union (Babis 2015; Ferrarini and Recine 2015)—and recommended establishing a European system of financial supervisors.2 With a view to achieving that objective, a European System of Financial Supervision was set up in 2010, comprising the European Banking Authority (EBA)3 and two other European Supervisory Agencies (ESAs),4 as well as a European macroprudential authority.5 In parallel, in 2011, the European Commission brought forward proposals to strengthen the resilience and regulation of the European banking sector. The legislative package consisted of two parts that should, however, be read together: the Capital Requirements Directive (CRDIV)—governing the access to deposit-taking activities and providing for principles on prudential supervision—and the Capital Requirements Regulation (CRR)—setting out detailed prudential requirements for banks and investment firms.
While the proposals for the CRDIV and CRR were still making their way through the legislative process, the European Commission in 2012 adopted another legislative proposal, providing for European rules for bank recovery and resolution: the Bank Recovery and Resolution Directive (BRRD). The BRRD was adopted with a view to addressing another regulatory gap that had become apparent during the financial crisis, namely the lack of adequate tools to deal effectively with ailing banks while preserving systemically important functions and avoiding, as much as possible, the injecting of public money.6 Meanwhile, the European Commission also decided to revisit the existing rules on deposit guarantee schemes and to improve those rules, where necessary, by adopting a proposal for a revised Deposit Guarantee Schemes Directive (DGSD).
The Need for a Common Institutional Framework: The Banking Union
While the creation of the Single Rulebook was well on its way, the financial crisis evolved and the subsequent Eurozone debt crisis put the spotlight on the interde-pendency between banks and national governments. Europe lacked centralized decision-making in the supervision and resolution of cross-border banks,7 and the crisis showed that this resulted in a vicious circle between member-states’ finances and their financial sector, the ring-fencing of bank assets, and the provision of taxpayer-funded lifelines—the so-called bail-outs. It became clear that the single currency could be threatened by differing national responses, leading to fragmentation in the Eurozone financial sector. A deeper, institutional integration of the banking system was considered necessary. Therefore, in 2012, the European institutions agreed to unify European supervisory and resolution systems by establishing a Banking Union.8
The Banking Union consists of three pillars. The first pillar is the Single Supervisory Mechanism (SSM), headed by the ECB as the central prudential supervisor of banks in the Euro area.9 The ECB assumed its tasks on November 4, 2014. The SRM, established by the Single Resolution Mechanism Regulation10 and headed by the SRB as central resolution authority, is the second pillar of the Banking Union.11 The third and final pillar of the Banking Union, the proposed European Deposit Insurance Scheme, has not yet been established. In November 2015, the European Commission published a proposal for this European Deposit Insurance system, according to which the SRB would become the authority in charge of a centralized European Deposit Insurance Fund.12 If that proposal were to be turned into legislation, the SRB would have tasks related to resolution as well as to deposit insurance, which would to some extent be similar to the Federal Deposit Insurance Corporation in the United States.
The Single Rulebook can be seen as the foundation of the Banking Union, but the latter goes well beyond having common rules. The Single Rulebook applies in all 28 member-states of the European Union and thus also within the Banking Union. The main texts of the Single Rulebook—consisting of the CRR,13 CRDIV,14 BRRD,15 and DGSD16—had been finalized and were in force when the first two pillars of the Banking Union were created. The ESAs continue to contribute to the development of the Single Rulebook and its uniform application across the European Union, mainly by drafting technical standards and guidelines that further specify the contents of the aforementioned legislation. Within the 19 countries of the Eurozone (participating member-states),17 the rules of the Single Rulebook are complemented by Banking Union—specific rules and institutional mechanisms that allow for further integration and centralized decision-making.
The EU Resolution Framework
The EU resolution framework consists of the BRRD and SRM Regulation. The BRRD applies to the European Union as a whole and was transposed into national legislation in its 28 member-states. The BRRD establishes common resolution rules and tools, including the bail-in tool, and it provides for the establishment of national resolution authorities and national resolution funds. Moreover, the BRRD requires that resolution colleges are established as platforms for coordination and cooperation with respect to banks with cross-border activities. Banking Union—specific rules—contained in the SRM Regulation—provide the infrastructure as well as the institutional framework for the operation of the BRRD in the Banking Union.18 The SRM Regulation builds on the BRRD by enabling more effective cross-border resolution. Resolution decision-making is centralized within the SRB, in coordination with the NRAs.19 Furthermore, the SRM Regulation created a Single Resolution Fund that replaces and comprises the national resolution funds.20 The ultimate goal of the BRRD and SRM Regulation is taking into account the lessons learned from the crisis and achieving the orderly resolution of banks without recourse to taxpayer’s money. In a nutshell: from bail-out to bail-in.
Functioning of the SRM: The SRB and NRAS
The Single Resolution Board
The SRB was established by the SRM Regulation. It is an independent agency of the European Union with a specific structure, located in Brussels.21 The SRB started its activities on January 1, 2015, and had a full set of resolution powers at its disposal as of January 1, 2016, when the SRM Regulation became fully applicable.22 It is composed of six full-time board members: a chair, a vice chair, and four members.23 As of early 2019, the SRB had around 300 staff members with diverse backgrounds in terms of nationality and professional experience (from the private and public sectors).
The SRB’s key responsibilities are to establish uniform rules and procedures for bank resolution; to establish a unified, credible, and feasible resolution regime; and to remove obstacles to resolution to ensure that all banks are capable of being resolved, without recourse to public funds. The role of the SRB is not limited to crisis situations but is forward looking and primarily focused on preparatory and proactive measures, such as drawing up resolution plans, setting appropriate levels of minimum requirements for own funds and eligible liabilities (MREL), and addressing impediments to resolvability. A resolution plan consists of a comprehensive description of credible and feasible resolution actions that may be implemented if a bank meets the conditions for resolution.24 Within the SRB, the resolution-planning and crisis-management activities are carried out in three directorates, each responsible for a number of banking groups clustered by their country of establishment. Every directorate is headed by a full-time board member.
Cooperation between the SRB and NRAs
The SRB cooperates closely with the ECB,25 the national supervisors, the Commission, the Council of the European Union, and the NRAs.26 This section focuses on the division of tasks and cooperation between the SRB and the NRAs in the Banking Union, as laid down in the SRM Regulation and as further specified in the Cooperation Framework between the SRB and the NRAs (Cooperation Framework).27
Indeed, the SRB is the central body of a hub-and-spoke system in which the NRAs have a key role, both in resolution planning and in execution of resolution actions (see infra). The SRM is built on a combination of local, in-depth knowledge and centralized decision-making, in line with the motto of the EU: “United in diversity.” The allocation of responsibilities is similar to the division of tasks within the SSM, which is headed by the ECB. The SRB and the ECB are directly responsible for the largest, so-called significant banks established in the Banking Union.28 National supervisors and NRAs are primarily in charge of smaller banks. The direct remit of the SRB is not, however, completely identical to that of the ECB. Unlike the ECB, the SRB is not only directly responsible for significant banks but also for “other cross-border groups,” meaning banking groups that have group entities in at least two member-states participating in the Banking Union.29 As of January 1, 2018, the SRB’s responsibility covers a total of 128 banks, including 120 banking groups (among them are all seven global systemically important banks [G-SIBs] established in the Banking Union). The number of banks under the SRB’s direct responsibility is subject to change, as new banks may be established and existing banks may cease to exist or may be classified differently over time.
As previously indicated, the SRB works closely with the NRAs regarding the banks under its direct remit. Internal resolution teams have been established, which are composed of SRB staff and NRA staff.30 Each team is coordinated by a senior staff member of the SRB, in cooperation with one or more subcoordinators from the relevant NRAs.31 In these teams, the SRB and NRAs cooperate in the day-to-day work for the banks under the SRB’s direct responsibility. The tasks of a team include, inter alia, assisting the SRB in the drawing up of resolution plans, performing resolvability assessments, determining measures to address or remove impediments to resolvability, and assisting in the preparation of resolution schemes.32
Where the SRB is responsible for drawing up resolution plans and adopting all decisions relating to resolution for the above-mentioned banks under its direct remit, the NRAs are responsible for the resolution planning and decision-making for all other banks in the Banking Union.33 However, coordination also takes place between the SRB and NRAs. For specific measures in relation to these banks, such as the establishment of the MREL and the adoption of a resolution scheme, the NRAs must inform the SRB in advance and send draft decisions to the SRB.34 The SRB may then express its views on the draft decision. The SRB can also request information from NRAs on the performance of their tasks, on a regular or ad hoc basis.35
The SRB has the ultimate responsibility for the proper functioning of the SRM as a whole, similar to the ECB’s ultimate responsibility for the proper functioning of the SSM. As such, the SRB may issue guidelines and general instructions to the NRAs.36 Guidelines and general instructions are of a general nature; they are not related to a specific entity or group and are not addressed to a specific NRA or group of NRAs.37 The SRB may also issue warnings to NRAs.38 In contrast to guidelines and general instructions, warnings are addressed to a specific NRA and are related to a specific bank under that NRA’s direct remit. A warning can be issued if the SRB considers that a draft decision of an NRA does not comply with the SRM Regulation or with the SRB’s general instructions. As a last resort, the SRB is empowered to “take over” the direct responsibility for specific banks within the purview of an NRA, to ensure the consistent application of high resolution standards.39 A participating member-state may also request the SRB to take over responsibility for entities and groups in that member-state.40 Moreover, if a resolution action requires the use of the Single Resolution Fund, the SRB is always responsible for the adoption of the resolution scheme, even if it concerns a bank under an NRA’s direct responsibility.41
Apart from the close cooperation between the SRB and the NRAs in day-to-day work, the NRAs also play an important role in the formal decision-making structure. The SRB has a specific governance where the decision-making process differentiates between the types of decisions to be taken. It is designed in a way that accommodates swift decision making in resolution cases. Therefore, the SRB operates in two different compositions: an Executive and a Plenary Session.42 The Plenary Session, in which all the NRAs are represented, takes certain general decisions that are not related to a particular resolution action.43 The Executive Session takes all decisions to implement the SRM Regulation, unless the Regulation provides otherwise.44 This includes all decisions on resolution actions of the entities and groups under the SRB’s direct responsibility. In the Executive Session, the Board consists only of the chair, the vice chair,45 and the four full-time members of the Board (“Restricted Executive Session”).46 When deliberating on a specific bank or group, the relevant representatives of the NRAs in the Banking Union participate as well (“Extended Executive Session”),47 meaning the appointed representatives of the NRAs of those participating member-states in which the bank on which a decision is to be taken is located. Representatives of NRAs of nonparticipating member-states are invited to participate as observers when deliberating on a group that has subsidiaries or significant branches in those nonparticipating member-states. The Executive Session should strive for consensus when taking its decisions. If, however, consensus cannot be reached, the chair and the four full-time board members take the decision by simple majority.48 As a result, there are only five voting members in the Executive Session, even if relevant NRA representatives participate. The idea behind the restricted composition and functioning of the Executive Session is to reflect the institution-specific nature of preparing and adopting decisions on resolution procedures and to allow for swift and independent decision-making, which is crucial in crisis situations.
In addition, there is a specific division of tasks between the SRB and the NRAs when it comes to taking resolution actions in relation to banks under the SRB’s direct remit. The SRB is responsible for the adoption of a resolution scheme in the Extended Executive Session, for example, deciding to place a bank under resolution and applying certain resolution tools.49 As soon as the decision enters into force—which only happens if no objection is expressed by the European Commission or the Council of the European Union within a period of 24 hours50—the decision is implemented at the national level by the NRAs concerned. The SRB’s resolution scheme is addressed to the relevant NRAs in the form of a specific instruction, requiring the NRAs to take the necessary measures to implement the scheme by exercising their resolution powers under national law transposing the BRRD.51 Thus, the NRAs are in charge of the execution of the resolution scheme as adopted by the SRB, and it must report to the SRB on its progress.52
Resolution Tools and Safeguards
Resolution Tools
The SRB and NRAs have several resolution tools at their disposal. However, it should be noted that not all banks will be placed under resolution if they are “failing” or “likely to fail.” In fact, it could be derived from the legal framework that a failing bank should in principle be wound up under normal insolvency proceedings.53 Resolution actions will only be taken if this is necessary in the public interest.54 That is one of the three conditions that must be met before an entity is placed under resolution,55 which serves as a justification for the interference with the rights of shareholders and creditors that the use of resolution tools inevitably entails.56 In the early stages of the resolution planning phase for each bank, an initial determination is made as to whether it can undergo normal insolvency procedures or whether resolution must be carried out.57
There are four resolution tools that the SRB—or the NRAs—might use: (1) sale of business,58 (2) bridge bank,59 (3) asset separation,60 and (4) bail-in.61 The sale of business tools and bridge bank tools both entail a full or partial transfer of instruments of ownership or the assets, rights, or liabilities of a bank. The difference between the two is that the business is transferred to another private entity (which may be another bank) in the case of the sale of business tool, whereas it is temporarily transferred to an especially created, newly licensed bank in the case of the bridge bank tool. The bridge bank can be wholly or partially owned by one or more public authorities and is controlled by the resolution authority. The bridge bank is a temporary solution: the resolution authority in principle has to terminate the operation of a bridge bank two years after the date on which the last transfer from the institution under resolution took place.62 The asset separation tool provides for the transfer of assets, rights, or liabilities to one or more asset management vehicles. Like the bridge institution, the asset management vehicle is wholly or partially owned by one or more public authorities. It manages the assets and liabilities it received from an institution under resolution or from a bridge institution, with the purpose of maximizing its value through an eventual sale or orderly wind-down.63 The asset separation tool cannot be used independently. In order to avoid moral hazard implications, it may only be applied together with another resolution tool.
Finally, a cornerstone of the European resolution regime is the bail-in tool. The latter can be used in two possible ways: open-bank bail-in and closed-bank bail-in. In the first scenario, the bail-in tool is used to absorb the losses and recapitalize the bank while it continues to operate. Restructuring actions will take place only later, according to a bank reorganization plan that is prepared by the management body of the bank within one month of the application of the bail-in tool, which sets out measures aiming to restore the long-term viability.64 In the second scenario, the bail-in is used in conjunction with immediate structural changes of the bank, for example, to convert to equity or reduce the amount of claims or debt instruments that are transferred when the bridge bank tool is used (in other words, capitalizing another institution to harbor essential functions).
In order to effectively make use of the bail-in tool, banks will be required to always meet the MREL, which will be determined for each entity during the resolution planning process.65 The MREL could be seen as the European version of total loss-absorbing capacity,66 although there are divergences. Moreover, the MREL not only applies to G-SIBs but to all banks.67
When the bail-in tool is applied, losses are first absorbed by shareholders either through the cancellation or transfer of shares or through severe dilution. Where a write-down and conversion of those instruments is not sufficient, subordinated debt is converted or written down (additional Tier 1 instruments and Tier 2 instruments).68 Senior liabilities may be bailed-in when the subordinate classes have been converted or written down entirely. In principle, all liabilities are subject to bail-in, not just those liabilities that are identified as MREL. However, certain liabilities are excluded from bail-in by law. This category includes, for instance, covered deposits,69 liabilities arising in short-term interbank lending (that is, liabilities to other banks with an original maturity of less than seven days), and certain liabilities to employees.70 Resolution authorities also have the ability to exclude or partially exclude certain other liabilities from the application of the bail-in tool. However, this is only possible under exceptional circumstances.71 For example, certain liabilities can be excluded if this is strictly necessary to avoid widespread contagion that could otherwise cause a serious disturbance of the economy of a European Union member-state or the European Union itself.
Safeguards
The resolution tools, and the bail-in tool in particular, are powerful tools that may have a serious impact on the position and property rights of creditors and shareholders. Therefore, several legal safeguards have been provided in the legislation to counteract this impact. This section highlights some of the main safeguards.
First, the so-called public interest assessment provides for a safeguard. Before placing an institution under resolution, the SRB must assess whether resolution action is necessary and proportionate to the resolution objectives—such as ensuring financial stability and the continuity of critical functions—and whether the winding up of the institution under normal insolvency proceedings would meet those resolution objectives to the same extent. If the public interest assessment is negative, the SRB cannot adopt a resolution scheme and the bank will be wound up in an orderly manner in accordance with the applicable national law.
A second important safeguard is the compliance with the ranking of capital instruments and other liabilities while applying the bail-in. As part of the general principles governing resolution, the BRRD and SRM Regulation provide that the shareholders of an institution under resolution should bear the first losses—akin to the insolvency creditor hierarchy—and that the creditors of the bank under resolution should bear losses after the shareholders in accordance with the order of priority of their claims under normal national insolvency proceedings, unless provided otherwise.72
Third, creditors of the same class should be treated equally, except where otherwise provided in the SRM Regulation.73 Thus, resolution authorities should in principle apply the bail-in tool and other resolution tools in a way that respects the pari passu treatment of creditors and the statutory ranking of claims under the applicable insolvency law.
Fourth, no creditor may incur greater losses than would have been incurred if the bank had been liquidated under normal insolvency proceedings (the “no creditor worse off” principle).74 For this purpose, the SRM Regulation and BRRD provide for an ex post valuation that must be undertaken by an independent party to make a comparison between the treatment of shareholders and creditors under resolution and their hypothetical treatment under insolvency proceedings.75 Should the outcome of the valuation be that creditors are worse off than they would have been under liquidation, they are entitled to the payment of the difference from the national resolution funds or, within the Banking Union, from the Single Resolution Fund.76
Last, but not least, the BRRD provides specific safeguards for counterparties in case of a partial transfer of assets, rights, or liabilities.77 These ensure an appropriate protection of, for example, security arrangements and set-off and netting arrangements.
As regards the possibilities for legal redress, the SRB has established an independent appeal panel to decide on appeals against certain decisions taken by the SRB, such as the determination of the MREL or the imposition of a fine.78 Such appeals do not have suspensive effect. Where there is no right of appeal to the appeal panel, decisions by the SRB can be contested before the Court of Justice in Luxembourg.79 Decisions can be contested within two months by member-states, European institutions, as well as by natural and legal persons if the decision is addressed to them or is of direct and individual concern to them. Such legal action before the Court of Justice does not automatically suspend the SRB’s decision.
International Cooperation
The SRB cooperates with many stakeholders. Strengthening international cooperation is essential, especially beyond the borders of the Banking Union. Building trust and cooperation is needed in order to strengthen the global financial system. From this perspective, one should see the establishment of the Banking Union as a stepping stone for achieving a smooth process for cross-border resolution on a global basis.
Within the European Union, following the FSB initiative, several crisis management groups are now active for G-SIBs. Until 2015, this was done at the national level: relevant national resolution authorities established crisis management groups for the Banking Union institutions that were identified as G-SIBs. The SRB has stepped in as the home resolution authority for these G-SIBs and is, in general, responsible for representing the NRAs for the cooperation with countries outside the Banking Union.80
In addition to these international platforms for cooperation and coordination, the BRRD provides for the establishment of two types of European cooperation fora: resolution colleges and European resolution colleges. Resolution colleges are established for banking groups headquartered in the European Union.81 Members are inter alia the resolution authorities of the subsidiaries and large branches, the relevant supervisory authorities, and authorities responsible for deposit guarantee schemes. Resolution colleges are European fora, but resolution authorities of non-EU countries can, on their request, be invited to participate as observers as well, to ensure cooperation and coordination with those authorities.82 Within resolution colleges, the resolution authorities should strive to take joint decisions on all aspects concerning the resolution of the group, including resolution planning and the assessment of resolvability, the determination of MREL and resolution strategies, and tools to be applied. The resolution authority of the European member-state, in which the parent undertaking is established, chairs the resolution college.83 The SRB is chairing many resolution colleges, as it represents the NRAs within the Banking Union for the banks under its responsibility. In case the SRB is a member of the college, the relevant NRA can still participate as an observer to ensure the effective cooperation between the European and national levels. The division of tasks within resolution colleges is further specified in the Cooperation Framework.84
In addition to the resolution colleges, the BRRD provides for the establishment of European resolution colleges for banking groups in which the parent undertaking is located outside Europe, if such a parent undertaking has at least two subsidiaries or large branches within the European Union. The idea behind European resolution colleges is that the European resolution authorities involved would speak with a single voice and take a unified position.
Conclusion
Looking back at the regulatory and institutional banking developments in Europe over the last several years, incredible progress has been made. A number of years ago, in the midst of the sovereign debt crisis, no one could have imagined that we would establish harmonized rules for banking supervision and resolution, accompanied by a Banking Union—specific institutional infrastructure at all—let alone in such a short timeframe.
Nevertheless, banking resolution remains a complex process, with many different public and private stakeholders all over the world that have different interests and perspectives. Transparency, predictability, and creating an understanding of the applicable rules are essential for the effective and successful interaction between the various stakeholders, and initiatives such as the IMF’s Law and Financial Stability Seminar are key to achieve this. In general, international cooperation is fundamental for achieving effective cross-border resolution.
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A. Joanne Kellermann was a full-time member of the Single Resolution Board (2015–18). Myrte Meijer Timmerman Thijssen is Legal Expert to the Single Resolution Board. The views expressed in this chapter are those of the authors and do not necessarily represent the views of the Single Resolution Board. The authors are very grateful for the input received from Chiara Giussani.
It currently consists of the 19 member-states of the European Union that have adopted the euro. A member-state whose currency is not the euro may decide to join the Banking Union by establishing a close cooperation. See infra footnote 17.
Presidency Conclusions of the Brussels European Council. June 18–19, 2009. https://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/108622.pdf.
On the “quasi-enforcement powers” conferred to the EBA and the issues related to the institutional interplay between the SRB and the EBA, see Georgosouli 2016; and Cappiello 2015.
The European Securities and Markets Authorities and the European Insurance and Occupational Pensions Authority. For a comprehensive view on the ESAs, see Wymeersch 2012.
The European Systemic Risk Board.
For a comprehensive overview of the BRRD provisions, see Babis 2014; and Hu 2015.
On the concept and objectives of “banking resolution,” see, inter alia, Binder 2015; Chiti 2014; and Huertas and Lastra 2011.
See the European Council’s Euro Area Summit Statement of June 29, 2012; the Report by the President of the European Council of June 26, 2012; and the European Commission communication of November 30, 2012. For an academic point of view, see, inter alia, Ferran 2014; Ferran 2015; and Gordon and Ringe 2014.
The legal basis is Council Regulation (EU) No. 1024/2013 of October 15, 2013, conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions, OJ L 287, 29.10.2013, p. 63 (“SSM Regulation”). On the SSM framework in detail see, inter alia, Ferran and Babis 2013; Gortsos 2015; Neumann 2014; Schuster 2014; Troger 2014; Wymeersch 2014; Wymeersch 2015a or 2015b?; and Wolfers and Voland 2014.
Regulation (EU) No. 806/2014 of the European Parliament and of the Council of July 15, 2014, establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of an SRM and a Single Resolution Fund and amending Regulation (EU) No. 1093/2010, OJ L 225, 30.7.2014, p. 1.
For a comprehensive analysis of the SRM legal framework see, inter alia, Busch 2015; Gortsos 2016; Howarth and Quaglia 2014; Kern 2015; Wiggins, Wedow, and Metrick 2014; and Zavos and Kaltsouni 2015. For a comparison between the legal and operational framework of the SSM and the SRM, see Wymeersch 2015a or 2015b?
Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No. 806/2014 to establish a European Deposit Insurance Scheme, COM(2015) 586 final, see http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52015PC0586. For a critical review of the proposal, see Gros 2015.
Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013, on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012, OJ L 176, 27.6.2013, p. 1.
Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013, on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC, OJ L 176, 27.6.2013, p. 338.
Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014, establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU, and 2013/36/EU, and Regulations (EU) No. 1093/2010 and (EU) No. 648/2012, of the European Parliament and of the Council, OJ L 173, 12.6.2014, p. 190.
Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014, on deposit guarantee schemes (recast), OJ L 173, 12.6.2014, p. 149.
Other European member-states (so-called nonparticipating member-states) may decide to join the SSM. Therefore, according to Article 2(1) SSM Regulation, “participating member state” means “a member state whose currency is the euro or a member state whose currency is not the euro which has established a close cooperation in accordance with Article 7.” According to Article 4(1) SRM Regulation, member-states participating in the SSM shall be considered to be also participating member-states within the SRM, thereby aligning the scope.
There is a difference in scope between the BRRD and the SRM Regulation. The EU-wide regulatory framework covers a broad spectrum of entities: banks, investment firms, and holding companies within the European Union, as well as European branches of banks and investment firms that are established outside the European Union. Within the Banking Union, all banks established in the Eurozone fall within the scope of the SRM. Investment firms and holding companies are also included, where they are subject to the consolidated supervision by the ECB. European branches of banks and investment firms that are based outside the European Union are included in the BRRD but are outside the scope of the SRM Regulation. Neither the BRRD nor the SRM Regulation is applicable to other financial firms, such as insurance companies and central counterparties. Recovery and resolution of such firms is still subject to rules at the national level. It is noted, however, that the European Commission adopted, in November 2016, a proposal for a European Regulation on the recovery and resolution of central counterparties. Although discussions have also taken place on a possible European recovery and resolution framework for (re)insurers, this has so far not resulted in any legislative proposal.
Whenever a decision is taken to place a bank under resolution, the ECB, the Commission and, possibly, the Council of the European Union, play an important role.
National resolution funds continue to exist for stand-alone investment firms and European branches of banks and investment firms that are based outside the European Union. On the Single Resolution Fund see, inter alia, Burke 2015; and Gortsos 2016, in particular 53–56 and 139.
Article 42(1), Article 47, and Article 48 SRM Regulation.
In 2015, in accordance with Article 99(3) SRM Regulation, the SRB started its work on resolution planning. However, in 2015, the SRB was not yet competent to place institutions under resolution and make use of the various resolution powers.
Article 43(1)(a) and (b) SRM Regulation.
See “The Single Resolution Mechanism—Introduction to Resolution Planning” on the SRB’s official website, https://srb.europa.eu/en/node/163.
The SRB and the ECB have concluded a Memorandum of Understanding, “In Respect of Cooperation and Information Exchange,” https://srb.europa.eu/sites/srbsite/files/en_mou_ecb_srb_cooperation_information_exchange_f_sign_.pdf.
Article 30(2) SRM Regulation.
Decision of the Board of 17 December 2018 establishing the framework for the practical arrangements for the cooperation within the Single Resolution Mechanism between the Single Resolution Board and national resolution authorities (SRB/PS/2018/15), which replaced the Decision of 28 June 2016, https://srb.europa.eu/sites/srbsite/files/decision_of_the_srb_on_cofra.pdf.
See the list of supervised entities at https://www.bankingsupervision.europa.eu/banking/list/who/html/index.en.html.
Article 7(2)(b) and Article 3(1)(24) SRM Regulation. See the SRB’s website for the list of other cross-border groups under the SRB’s direct responsibility; the list is updated on a regular basis.
Article 83(3) SRM Regulation and Article 24 Cooperation Framework.
Article 25(1) Cooperation Framework.
Article 24 Cooperation Framework.
The NRAs are also fully responsible for the resolution tasks relating to firms that are outside the scope of the SRM.
Article 7(3)(fifth subparagraph) and Article 31(1)(d) SRM Regulation, Article 33–34 Cooperation Framework.
Article 31(1)(c) SRM Regulation and Article 35 Cooperation Framework.
Article 31(1)(a) SRM Regulation and Article 5 Cooperation Framework.
Article 5a(2) Cooperation Framework.
Article 7(4)(a) SRM Regulation and Article 7 Cooperation Framework.
Article 7(4)(b) SRM Regulation.
Article 7(5) SRM Regulation. To date, no participating member-state has done so.
Article 7(3)(second subparagraph) SRM Regulation.
Article 43(5)(a) and (b) SRM Regulation. Representatives of the ECB and of the Commission are entitled to participate as permanent observers in both Sessions (Article 43(3) SRM Regulation). For an analysis of the relevant legal provisions, see also Busch 2015, 289.
See Article 50 SRM Regulation for the list of tasks of the Plenary Session. An exception is provided in case a specific resolution action requires support of the SRF above the threshold of €5 billion, for which the weighting of liquidity support is 0.5. In such a case, according to Article 50(1)(c) SRM Regulation in conjunction with Article 50(2) SRM Regulation, the resolution scheme prepared by the Executive Session is deemed to be adopted unless, within three hours after the submission to the Plenary Session, at least one member of the Plenary Session calls for a meeting. In the latter case, the Plenary Session decides on the resolution scheme.
Article 54(1)(b) SRM Regulation.
As a nonvoting member, who carries out the chair’s function in their absence.
Article 2(m) Cooperation Framework.
Article 2(n) Cooperation Framework.
Article 55(1) and (2) SRM Regulation.
The decision to place a bank under resolution is made in close cooperation and consultation with the ECB, in accordance with Article 18 SRM Regulation and the memorandum of understanding between the SRB and the ECB (see supra footnote 25). In case it is foreseen to use the Single Resolution Fund, or if the resolution action involves the granting of state aid, the resolution scheme cannot be adopted before the European Commission has adopted a positive or conditional decision concerning the compatibility of such aid with the internal market, in accordance with Article 19 SRM Regulation.
Article 18(7) SRM Regulation.
Article 18(9) SRM Regulation and Article 29 SRM Regulation.
Article 28 SRM Regulation.
See, for instance, Recital (59) and (61) SRM Regulation.
Article 18(1)(c) in conjunction with Article 18(5) SRM Regulation. See also “Public Interest Assessment: SRB Approach,” available on the SRB website.
Article 18(1)(a), (b), and (c) SRM Regulation.
Recital (13) BRRD.
Article 10(3)-(5) and Article 11(3) SRM Regulation.
Article 24 SRM Regulation and Articles 38–39 BRRD.
Article 25 SRM Regulation and Articles 40–41 BRRD.
Article 26 SRM Regulation and Article 42 BRRD.
Article 27 SRM Regulation and Articles 43–44 BRRD. Resolution action can be combined with the exercise of the power to write down and convert relevant capital instruments as referred to in Article 21 SRM Regulation. The latter power can also be applied independently of resolution action and must in such case be applied when the institution or group will no longer be viable unless that power is exercised. For a comprehensive analysis of all the resolution tools, see also also Busch 2015, 316. On bail-in, see, inter alia, Avgouleas and Goodhart 2015; and Gardella 2015, 373.
Article 41(5) BRRD.
Article 42(3) BRRD.
Article 27(16) SRM Regulation and Article 52 BRRD.
Article 12 SRM Regulation and Article 45 BRRD.
Total loss-absorbing capacity is an international standard introduced by the Financial Stability Board (FSB) with a view to ensure adequacy of total loss absorbing capacity for G-SIBs; see the FSB’s Principles on Loss-absorbing and Recapitalisation Capacity of G-SIBs in Resolution-Total Loss-absorbingCapacity (TLAC) Term Sheet, November 9, 2015, http://www.fsb.org/wp-content/uploads/TLAC-Principles-and-Term-Sheet-for-publication-final.pdf. See also the FSB’s Guiding Principles on the Internal Total Loss-absorbing Capacity of G-SIBs (Internal TLAC), July 6, 2017, http://www.fsb.org/wp-content/uploads/P060717-1.pdf.
For a comprehensive overview on MREL, see Maragopoulos 2016, www.ecefil.eu.
This is done by exercising the power to write down and convert relevant capital instruments as referred to in Article 21 SRM Regulation. The scope of this power is to be distinguished from the scope of the bail-in tool: While the former applies to capital instruments, the latter applies to “eligible liabilities” as defined in Article 2(1)(71) BRRD. Concretely, a resolution authority must first exercise the power to write down and convert relevant capital instruments before using (if necessary) the bail-in tool.
As defined in Article 2(1)(5) of the DGSD, that part of deposits that are protected by a deposit guarantee scheme not exceeding the coverage level of €100,000.
Article 27(3) SRM Regulation.
Article 27(5) SRM Regulation. While the bail-in tool provides this possibility to exempt certain liabilities in exceptional cases, the write down and conversion power does not allow any exception.
Article 15(1)(a) and (b) SRM Regulation.
Article 15(1)(f) SRM Regulation.
Article 15(1)(g) SRM Regulation. See also de Serière and van der Houwen 2016.
Article 20(16)-(18) SRM Regulation and Article 74 BRRD.
Article 75 BRRD and Article 76(1)(e) SRM Regulation.
Article 76 to 80 BRRD.
Article 85 SRM Regulation.
Article 86 SRM Regulation. On the judicial protection system within both the SSM and SRM, see Arons 2015.
Article 32(1) SRM Regulation.
Article 88 BRRD.
Article 88(3) BRRD.
Article 88(5) BRRD.
Article 36a to Article 38 Cooperation Framework.